The editors at Money Choice have been interested in the topic of the future of money in a global economy and decided to do some research. This infographic is the result of our efforts.
The Future of Money – A global currency?
Currency in Crisis
$4.44 trillion are traded per day in foreign exchange markets,
- 37.4% UK
- 16.9% US
- 6.3% Japan
- 39.4% everyone else
- 16.5 times more than the trading volume of all the stock markets of the world combined.
What is the daily trading value of all the stock markets
- in 2011 – $66,419,275,784,918.00 /365 = $181,970,618,588.82 per day roughly $182 billion
- in 2011 – $66,419,275,784,918.00 / 250 trading days = $265,677,103,139.672 roughly $266 billion per trading day.
- Only 2% of these foreign exchange transactions relate to the “real” economy reflecting movements of real goods and services in the world, and 98% are purely speculative.
These speculations trigger foreign exchange crises
shook Mexico in 1994-5 – “the Tequila Crisis”
- The peso crashed under a floating regime from four pesos to the dollar to 7.2 to the dollar in the space of a week.
Asia in 1997
- Thailand – The baht reached its lowest point of 56 units to the US dollar in January 1998 (more than half its value). The Thai stock market dropped 75%.Finance One, the largest Thai finance company until then, collapsed
- do we have the levels the stock market was at before / after? if not, that’s ok, i’ll probably just leave a lot out.cant find
Indonesia – exchange rate plunged to over 14,000 rupiah to 1 USD for about six weeks during June–July 1998.
- Indonesia lost 13.5% of its GDP that year.
- 80 million Indonesians–or 40% of the population– fell below the poverty line in 98
Do we have historical information for this? out of context it won’t make much sense. compare to 11% in 1996
- In South Korea, the $170.9 billion fall in 1998 was equal to 33.1% of the 1997 GDP So we could say that south korea lost 33% of it’s gdp? yes
- Effects of Asian Financial: The nominal U.S. dollar GDP of ASEAN fell by US$9.2 billion in 1997 and $218.2 billion (31.7%) in 1998.
Russia in 1998. “Russian Flu”
- Russian inflation in 1998 reached 84 percent
- welfare costs grew considerably
- Many banks, including Inkombank, Oneximbank and Tokobank, were closed down as a result of the crisis.
- From 17 to 25 August 1998, the ruble steadily depreciated on the MICEX, moving from 6.43 to 7.86 RUR/USD.
The winner of the worst inflation award goes to… Zimbabwe has suffered through one of the worst hyperinflation crises in history. The Zimbabwean dollar had to be replaced in April 2009 by foreign currencies, including the U.S. dollar.
However, Zimbabwe’s peak month of inflation is estimated at 6.5 sextillion percent in mid-November 2008. Do we have historical data from before? for its value?
- August 2005: Z$17 thousand = USD 1
- July 2008 – Z$66 billion = USD 1
- In 2009, Zimbabwe abandoned its currency. As of 2012, Zimbabwe still has no national currency; currencies from other countries are used
- However, Zimbabwe’s peak month of inflation is estimated at 6.5 sextillion percent in mid-November 2008. Do we have historical data from before? for its value?
- These emergencies are the dislocation symptoms of the old Industrial Age money system.
- shook Mexico in 1994-5 – “the Tequila Crisis”
- “50-50 chance the next five to ten years will see a global money meltdown,” according to Bernard Lietaer, author of Future of Money: Creating New Wealth, Work, and a Wiser World
National currency crises – a third world war?
- “Governments from Germany, to Russia, to Brazil, to Thailand have expressed worry that the world is plunging into a currency war,” Bloomberg Businessweek reports.
- “I think the biggest danger is … a currency war,” Hedge fund icon George Soros, chairman of Soros Fund Management
Easing isn’t an Easy Button/ Don’t push the easing button
- With so many central banks easing at once, the currency effect of each country’s easing has been nullified.
- Loosening monetary policy causes depressed currency by lowering interest rates and boosts inflation, making currency less attractive to global investors.
Governments frequently pursue a weaker currency in times of economic stress to boost exports. But one country’s devaluation often begets another, raising fears of a currency war.
- this “beggar-thy-neighbor” policy of global currency devaluations helped spark the Great Depression in 1929.
- What is Quantitative Easing? Here’s one way to see it: when developed economies create massive amounts of money for their falling economies while delaying the timing of fiscal consolidation
Nations Currently Involved in Quantitative Easing:
Japan: On 1/22/13, prime minister Shinzo Abe announced that the Bank of Japan would initiate an open-ended asset-buying program from 2014, which will
- increase its quantitative easing
- set a target of 2 percent for inflation.
- In Japan, some say that monetary policy still isn’t stimulative enough to boost the moribund economy.
- the yen has plunged to a 2 ½-year low (1/25/13), but some experts don’t think the decline will last.
- US: The Dollar Index, which measures the greenback against six other major currencies, has risen a bit since shortly after the Fed began its quantitative easing in November 2008.
- England: The British pound is little changed against the dollar since the Bank of England began its QE2 October 2011. QE hasn’t hurt the euro either, according to The Wall Street Journal.
- Japan: On 1/22/13, prime minister Shinzo Abe announced that the Bank of Japan would initiate an open-ended asset-buying program from 2014, which will
- The effect of Quantitative Easing on emerging countries:
- will the South Korean ‘won’’s gain be capped because of exports?
- The weakening trend of the yen makes South Korean products more expensive in overseas markets
How will Japan’s easing effect the won?
- The Korean currency rose about 20 percent per the yen last year, the strongest gain in 14 years.
- When the won-yen cross rate falls by 1 percent, South Korea’s exports decline by 0.92 percent
When will the easing cycle end?
- The Korea Center for International Finance said that the global financial markets could be destabilized if countries like South Korea and China, who compete with Japan in overseas markets,jump on the bandwagon to curb the ascent of their currencies
- will the South Korean ‘won’’s gain be capped because of exports?
frequent flyer miles
- are evolving toward a “corporate scrip” (a private currency issued by a corporation) for the traveling elite;
- a giant corporation you never heard of is issuing its own “Netmarket Cash” for Internet commerce
- Alan Greenspan, Chairman of the Federal Reserve, foresees “new private currency markets in the 21st century.”
1,900 local communities in the world, including over a hundred in the US, are now issuing their own currency, independently from the national money system.
- Some communities, like in Ithaca, New York, issue paper currency;
- others in Canada, Australia, the UK or France issue complementary electronic money.
The value of barter transactions
- exchanges which do not use any money as medium of exchange – totaled almost $6.5 billion in 1994 in the US and Canada, and is increasing three times faster than normal exchanges.
The magazine “Barter News” covers the industry’s development and now has 30,000 subscribers.
- “Barter News” estimate the total barter worldwide at $650 billion in 1997, and growing at an annual rate of 15%.
Switch to a Global Currency?
- U.S. Treasury Secretary Timothy Geithner : “quite open” to the idea of an eventual move toward a global currency run by the International Monetary Fund.
- How would it work?
- a currency specifically for multinational trade and contracts
- would focus attention on long-term sustainable solutions without current regulations or taxation
- Who Would Benefit
- Developed nations due to no currency risk in international trade.
- Even playing field.
- nations like China could no longer use currency exchange as a means to make their goods cheaper on the global market.
Large German firms, which were already some of the most dominant in the world before the euro. Southern European nations began to demand more German goods,
and all of this new money coming into Germany led to considerable prosperity.
- Developing countries might benefit considerably with the introduction of a stable currency which would form a base for future economic development.
- The Downfalls
The most obvious downfall to the introduction of a global currency would be the loss of independent monetary policy to regulate national economies.
in the recent economic crisis in the United States, the Federal Reserve was able to lower interest rates to unprecedented levels and increase the money supply in order
to stimulate economic growth. These actions served to lessen the severity of the recession in the United States.
- in the recent economic crisis in the United States, the Federal Reserve was able to lower interest rates to unprecedented levels and increase the money supply in order
- Monetary policy could not be enacted on a country by country basis. Rather, any change in monetary policy would have to be made at the worldwide level.
- Despite the increasingly global nature of commerce, the economies of each nation throughout the world still differ significantly and require different management. (round hole square peg)
- Subjecting all countries to one monetary policy would likely lead to policy decisions which would benefit some countries at the expense of others. (no kidding)
- Supply and Printing
- The supply and printing of a global currency would have to be regulated by a central banking authority, as is the case for all major currencies.
- euro as a model
- euro is regulated by a supranational entity, the European Central Bank (ECB).
- This central bank was established through a treaty amongst the members of the European Monetary Union.
- To avoid political bias, the European Central Bank does not exclusively answer to any particular country.
- In order to ensure proper checks and balances, the ECB is required to make regular reports of its actions to the European Parliament.
- Is there a future for a global currency? Only time will tell.